Economists Who Are Skeptical About the Relevance of "Liquidity Traps

question 175

Multiple Choice

Economists who are skeptical about the relevance of "liquidity traps" argue that

• A)a central bank continues to have tools to stimulate the economy, even after its interest rate target hits its lower bound of zero.
• B)a central bank continues to have the option of committing itself to future monetary contraction, even after its interest rate target hits its lower bound of zero.
• C)a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero.
• D)while the concept of a liquidity trap is theoretically possible, nothing resembling a liquidity trap ever has been observed in the real world.

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Definitions:

Unit Product Cost

The total expense incurred to produce and deliver one unit of a product, including both direct and indirect costs.

Variable Costing

An accounting technique that entails including only the variable costs of production, like direct materials, labor directly involved in manufacturing, and variable factory overhead, into the pricing of products.

Unit Product Cost

The total cost (fixed and variable) incurred to produce, store, and sell one unit of a product.

Net Operating Income

A financial metric that shows how much profit a company generates from its core business operations, excluding expenses from interest and taxes.